CITY LAWYER LAW REPORT

In the Supreme Court of Nigeria

Holden at Abuja

On Friday, the 24th day of May, 2024

Before Their Lordships

Kudirat Motonmori Olatokunbo Kekere-Ekun

Mohammed Lawal Garba

Helen Moronkeji Ogunwumjiu

IbrahimMohammed Musa Saulawa

Tijjani Abubakar

Justices, Supreme Court

SC/CV/709/2020

Between

OWIGS AND OBIGS NIG. LTD     APPELLANT

And

ZENTIH BANK PLC RESPONDENT

(Lead Judgement delivered by Honourable Tijjani Abubakar, JSC)

Facts

The Appellant averred that there existed a business relationship between the Appellant and Respondent subject to contract JY-OONL and KTTA14045 in the value of $64,107,180.00 for export of Tin, Columbite and Tantalite Ores. The terms of the contractual relationship was established to involve the intermediary firm –  Eglone Group Asia Pte Ltd – as the offshore brokerage firm, and the third party company, Miracle Waters Ltd as the local supplier of material goods. The Appellant stated that the Respondent as the confirming bank, had specific duties and obligations distinct and separate to the Appellant, while the Appellant as the Exporter had specific duties and obligations to King-Tan Tantalum Industry Ltd and Guangdong Jiayuan Metals Co. Ltd. as importers with Industrial and Commercial Bank of China as the issuing bank. It was the case of the Appellant that due to the Respondent’s negligence to and failure to carry out its obligations on time by confirming the Letters of Credit issued by the buyer’s bank – Industrial and Commerce Bank of China (ICBC), the contract was terminated and default fees were unilaterally deducted by the Respondent from the Appellant’s account.

Miffed by the cancellation of the contracts, the Appellant instituted an action at the High Court of the Federal Capital Territory vide a Writ of Summons claiming inter alia, “the sum of Four Thousand, Four Hundred and Eighty- Six Dollars, Four Cents ($4486.04) (equivalent in Naira value of NGN740,256.00) at the material time of the exchange rate of NGN165.00 per USD being the money unlawfully withdrawn from the Plaintiff’s Domiciliary account No. 5070298728 to pay off the penalty/default charges on the performance board.” The Appellant also claimed for special, anticipated and aggravated damages against the Respondent.

After the conclusion of the trial, the court found that the Respondent Bank was not negligent and therefore, not liable in damages to the Appellant. The suit was therefore, dismissed.

Aggrieved, the Appellant appealed to the Court of Appeal. The Court of Appeal found that the Respondent was negligent, and ordered the refund of the penalty fees paid on behalf of the Appellant in the sum of $4,486.04. Still dissatisfied, particularly in relation to award of monetary damages (which the Appellant believed should have been more), the Appellant further appealed to the Supreme Court.

Issues for Determination 

1. Whether the Court of Appeal can rewrite the UCP Rules which established the rights and obligations of parties in international trade transactions, which is binding on the extant contract as specified.

2. Whether the lower court having found that the Respondent was negligent and it is its negligence that breached the contract and occasioned the losses suffered by the Appellant, was right when it failed to indemnify the Appellant in damages commiserate to the losses suffered by the Appellant.

Arguments

On the first issue, Counsel for the Appellant submitted that the decision of the lower court is inconsistent with trade customs and practice. Counsel argued that in international trade transactions, the defaulting party, being the Respondent, liable for a breach of contract, takes the liabilities and responsibilities of its own actions subject to the Uniform Customs and Practice for Documentary Credits (UCP) Rules. He contended that these liabilities are not transferrable to the non-defaulting Appellant, who is not responsible for the incurred losses caused by the defaulting party. Counsel therefore, argued that the decision of the lower court to have the non-defaulting Appellant pay default fees or incur losses caused by the Respondent, even when it is forbidden by the terms of the contract, is perverse.

In response, Counsel for the Respondent submitted that the decision of the lower court does not in any way violate any of the UCP Rules; that damages are not awarded for “anticipated losses” but for actual damage or loss, except general damages. Counsel argued that since the Respondent was not a party to the contracts allegedly breached, the Respondent cannot be held liable under the said contracts. He argued that the default fees, commissions, etc. enumerated in the said contracts are only payable by a party in breach and not by a third party, and the Respondent cannot be vicariously liable under the said contract in place of the Appellant.

On the second issue, the Appellant reiterated that in international trade transactions, subject to UCP, damages under breach of contract, are reparable or fixable by payment of default/penalty fees as remedies required to fix or repair the damages caused. He submitted that the two-party contract between the confirming Bank and the Seller/Appellant with the third party (Eglone Group Asia Pte and Miracle Waters Limited) were based on the fact that confirmed Letters of Credit were required to be issued by the Respondent as the confirming Bank, and these contracts were bound together under one governing rule, subject to the same principle and consequently, dissolved as one contract under the Letters of Credit. He continued, stating that the breach deduced from the records before the court are breach of trust and confidentiality rules and breach of contractual duty of care, which should have entitled the Appellants to all the reliefs sought and not just only the sum of $4,486.04 awarded in its favour.

Responding, Counsel for the Respondent argued otherwise. He submitted that the lower court was right in refusing to award further damages in favour of the Appellant, aside the order for refund the penalty fee of $4,486.04 paid out by the Respondent on behalf of the Appellant. Submitting further, Counsel argued that even though there are four autonomous transactions in international trade transactions, the purported contract which the appeal relates to is the one between the confirming bank, the Respondent and the Appellant, and not the other three between the buyer and the seller, the buyer and the issuing bank or the issuing bank and the confirming or correspondent bank.

Court’s Judgement and Rationale

The Supreme Court highlighted that the issue in the appeal turns on the question of damages to which the Appellant is entitled to, upon a finding by the lower court that the Respondent was negligent as it failed to confirm the relevant Letter of Credit. The court explained that the UCP 600 is a set of rules agreed by the International Chambers of Commerce, which apply to finance Institutions which issue Letters of Credit — financial instruments helping companies finance trade. In Nigeria, UCP 600 became effective on the 1st July, 2007, vide a notice/circular issued on 25th June, 2007, by the Central Bank of Nigeria. Their Lordships noted that the grievance of the Appellant in the appeal centres on the fact that the lower court, by its decision that the Appellant did not prove that the sums claimed as anticipated profit, default charges or commission are actual losses, capable of being granted as special damages, has rewritten the provisions of UCP 600 which governs the contractual relationship of the parties. However, their Lordships found that the Appellant did not point to the court any of the provisions of the UCP 600 which was purportedly re-written, or any provisions which the decision of the lower court ran afoul of.

The Supreme Court then considered whether the contracts of purchase/supply/brokerage between the Appellant and third parties as well as the “contract” between the Appellant and the Respondent as “confirming bank” under the Letters of Credit could be treated as a single contract. On the foregoing question, Their Lordships held that the advising or confirming banks do not have any legal relationship with the beneficiary – AKINSANYA v UBA (1986) 4 NWLR (PT. 35) 273. Financial institutions are not obligated to or concerned with any contract that may be referenced in a Letter of Credit, despite the fact that the Letter of Credit may include some reference to that contract. A bank’s promise to honour, negotiate or fulfil any other obligation arising from the credit is not subject to claims or objections by the Applicant, because of the Applicant’s ties with the issuing and beneficiary banks, and the agreements between the banks, or between the purchaser and the issuing bank, cannot be used by the vendor. The independence of the Letter of Credit is described as, the autonomy principle. Letters of Credit are completely independent of the underlying sale/purchase contract; they are autonomous of the performance of the underlying contract. Some of the recognised exceptions recognised in advanced jurisdictions in relation to the autonomy principle are: fraud, unconscionability, illegality, recklessness of the beneficiary, etc.

Flowing from the above, the Supreme Court held that even though the ‘contract’ between the Appellant and Respondent was interconnected with the other contracts between the Appellant and third parties, as well as between the Respondent, as confirming Bank and the issuing Bank, these contracts were autonomous, giving rise to distinct rights and obligations. The Court therefore, rejected the argument canvassed by the learned Counsel for the Appellant that both the underlying contracts and the ‘contract’ for the Respondent to act as confirming Bank in connection with the letters of credit should be treated as one.

The Apex Court further reiterated the settled position of law that only a party to a contract has the capacity to terminate the contract. Therefore, a person who is not a party to a contract or transaction does not have the capacity to terminate the contract, and this accords with the elementary principle of law that it is only the parties to a contract that can sue on the contract or be sued.

Regarding the claims for monetary reliefs, Their Lordships agreed with the lower court that the monetary reliefs sought by the Appellant, save for the relief for aggravated damages, were by their nature, special damages, which by law, were required to be particularised in the pleadings and specifically pleaded, and proved and that there was no proof of actual loss to the Appellant as the Appellant did not lead evidence to demonstrate that it had already paid out or incurred the monetary sums being claimed as commissions and default fees due to third parties, to entitle it to an award under the heads of claim in its favour. The Supreme Court held that A fortiori, the onus is on the Plaintiff to establish the accuracy of the projected gross profit in proof of his claim. Thus, if evidence which will help the court to assess the accuracy of the projected profit is inadequate, lacking or not convincing, it is the Plaintiff who will fail in his claim for anticipated profit. Being a claim for special damages, which can only succeed in respect of actual and not estimated or anticipated loss of profit, the amount claimed by the Appellant as loss of profit was an estimated or speculative profit at the time when the action was commenced at the trial court. The Court therefore, held that the claim for loss of profit had not been made by the Appellant, and the issue was resolved against the Appellant and the judgement of the lower court was affirmed.

Appeal Dismissed.

Dissenting Opinion of Honourable Ogunwumiju, JSC on relief 8

Regarding relief 8 in the Appellant’s Writ of Summons which relates to claim for the sum of N2 billion Naira as damages for loss of goodwill and further trading opportunity with the Chinese Chambers of Commerce/International Chambers of Commerce of Asia, Her Lordship opined that the Respondent deliberately frustrated the terms of an international contract by refusing to issue the Appellant’s confirmed Letter of Credit which caused the Appellant incalculable harm in its business with its resultant effect on the employees of the company. The Supreme Court is not only a court of justice, but a custodian of the law. An innocent party should not come to the court, and leave without respite. Though the Appellant here was not able to establish the special damages claimed, it is entitled to compensation for its loss of business and loss of trust with its international business partners which was occasioned by the Respondent’s unilateral breach of contract and negligence. Given that general damages are subjective and need not be determined by invoices and receipts, Her Lordship thereby, granted general damages to the Appellant in the sum of N500 million against the Respondent for the loss of goodwill and further trading opportunities with the Chinese Chambers of Commerce/International Chambers of Commerce of Asia. Her Lordship, allowed the appeal in part.

Representation

Emmanuel I. Ikpebe with Grace E. Elechi for the Appellant.

Dr James Agbonhese for the Respondent.

• Reported by Optimum Publishers Limited, Publishers of the Nigerian Monthly Law Reports (NMLR), an Affiliate of Babalakin & Co.
• Culled from THISDAY LAWYER